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Homework Answers
Answer:
a. Assume Nina’s marginal tax rate at retirement is 30 percent.
| Before-tax contribution | $6640 |
| Future value factor | 6.7270 |
| Future value of contribution | $44671 |
| Taxes payable on distribution | ($13401) |
| After tax proceeds from distribution | $31270 |
b. Assume Nina’s marginal tax rate at retirement is 20 percent.
| Before-tax contribution | $6640 |
| Future value factor | 6.72750 |
| Future value of contribution | $44671 |
| Taxes payable on distribution | ($8934) |
| After tax proceeds from distribution | $35737 |
c. Assume Nina’s marginal tax rate at retirement is 40 percent.
| Before-tax contribution | $6640 |
| Future value factor | 6.72750 |
| Future value of contribution | $44671 |
| Taxes payable on distribution | ($17868) |
| After tax proceeds from distribution | $26803 |
Explanation :
Before-tax contribution = 0.08 x $83,000 = $6640
Future value factor = 6.72750 (from FV table)
Future value contribution = $6640 x 6.72750 = $44671
Tax payable = $44671 x Tax rate
After tax proceeds = Future value contribution - Tax Payable
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